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In this episode, you’ll discover:

  • How to create a snowball effect in your business by becoming a “cash guy”. (2:08)
  • Why real estate won’t make you rich overnight. (2:58)
  • 30-year mortgages can ruin your cash flow. Here’s why. (3:48)
  • How to “background check” your next investment to make sure you don’t burn cash on it. (4:00)
  • The weird way to finance your assets that gets you cash faster than any bank. (6:04)
  • Why you shouldn’t leverage debt to finance your assets. (7:10)

Hey! Do you want to do a deal? Need my help with something? No cash to make an offer? Send me a quick text at 440-389-3883 and we’ll work together to get you the deal.

Read Full Transcript

Welcome to Cleveland real estate investor. On this podcast, you'll hear about every aspect of the real estate investment business. You will talk to your rockstar investors about their businesses, how they built them, where they came from, and where they're going. Who am I? I'm Joe Lieber and I've made millions of dollars from the real estate investment business over the last 20 years. If you're ready to hear the good and bad from a guy who's learned this business from the school of hard knocks and get educated by some bad ass entrepreneurs, then put your helmet on, strap on your chin strap. Let's ride.

Yo yo, yo, what up? What up everybody. Thanks for tuning in today to another episode of Cleveland real estate investor. So I want to talk to you guys today about financing houses, verse paying cash and all the different ways to finance these investment properties.

(00:53): Today's a snowy day up here in Cleveland. I'm actually coming to you from my vacation home. [inaudible] Vacation. I'm in Cleveland, right there actually is. There's a little place on Lake Erie called Catawba Island. And I have a second home up here in this nice little yachting golf community and I had to get a furniture delivery today. So I thought I would come up here and wait for the furniture guy and record a show that will be of interest in value. So as I stand here and walk around this property, I was thinking of all the ways and all the things I did over the years to finance houses and we're going to talk about them today. So just to dive right in on this, what are all the different ways to finance properties? You know, I mean, we know the traditional ways to do it.

(01:38): We know our regular 30 year mortgage, there's 15 year mortgages, there's owner financing, there's subject to, there's cash. So everybody has a different way of doing it and what works for them. See, some people like to take 30 year mortgages to increase cash flow and enjoy the interest right off. And that's a whole tax play. And I respect that. I understand that. I did that. You know, it has its pros and cons. Like everything. See I'm a cash guy. I've always wanted to either use cash or get these properties paid for as quickly as possible. I would do that whole snowball effect. One gets paid for, use a cash flow to pay off the next one and try to get things paid for as quickly as possible. Some of you know or don't know, but my current portfolio has no debt on it and it's really awesome.

(02:31): I got there quickly with it. I use different techniques to pay it off quickly and now I'm enjoying that cash flow. But I want to say that not everyone invest for cash flow. It takes a while. There's ramp up periods for this stuff. It takes time to get there. You're not going to overnight have a paid for or this awesome cash flow in property where you're just living off all this passive income and Shangri-La milk and honey. So you know, you have to know that, that this business is a, it's not a get rich overnight business. It's a business where you get rich over time. It's the reality. So a couple of techniques that I like to use are, are shorter term mortgages. Now that could, I mean a couple of different things. I mean I did a five year amortization and a lot of my properties, but I was able to buy properties from 2007 and 2012 for almost nothing.

(03:23): 2020 $5,000 houses where you could buy them on a five year fully amortized private loan and you use private investors and get these things paid off really quick. Best strategy. Pride doesn't work that well anymore, but is the 15 year term a short term mortgage I'm going to kind of is, when you're talking about real estate and you can still enjoy all the tax benefits and things of that nature. Depreciation 30 or mortgages. For me it just seems too long. You know I've always had not been able to like cashflow. Awesome with 30 year mortgages. If you're going to do them it's fine, but my advice to you is whatever asset you're buying, make sure that capeX is done. For those who don't know what cap cap X is, is short for capital expenditure. And what that means is the major stuff, the roof windows, siding furnaces, ACS, hot water tanks, because nothing will beat your cash flow to death quicker than three years from now.

(04:18): And I'll put a roof on. I mean if you're cool with come out of pocket for stuff like that, fine. But if you're trying to get the asset to pay for it, you better save that monthly cash flow to do your cap backs with. So if I was buying turnkey real estate on 30 or mortgages, I would for sure want to make sure my cap ex is done, make sure I have a new roof on there and things like that. I've also seen a lot of folks do mortgages by seller, right? So I funded a couple of loans like this where someone will come to me and buy a turnkey property. Let's just make up some numbers here, kind of earthing with the last deal that I did, like a $75,000 purchase price of a house renting for $1,000 a month. I've been doing half down, so I would get $35,000 down and then I would carry alone for the perspective investor, but 35K loan, I call it lone by uncle Joe.

(05:09): Right. Kind of a little tagline thing as are coming up with, and I would find that the rates are going to be higher. Of course it's private lending as high as 15% I know it sounds crazy, but I'll tell you what. I had private loans in the past where I paid 12 to 15% it's just what it is. That's the world of private lending. No, it's not hard money. You know? It's not 18% and 10 points. It's private and private money runs 10 to 15% yeah, zero points or a couple points and there's not a whole lot of fees associated with it with getting the loan. It's really not that bad of a deal when you start looking around, and I'll tell you what, I know a lot of people in the mortgage business, you know I have pretty deep ties to that. It's expensive to borrow money.

(05:50): When you even take out a traditional loan and get a 5% mortgage, you look at your loan origination fee, look at all the title costs, look at appraisals. I mean, those are all things that really add up and gets expensive. So I'm a big fan of private financing. I think it's actually cheaper and easier in the long run. Not to mention, you see all the things that these banks want from people, tax returns and pay stubs, and your 401k statement, a blood sample. And it's really pretty wild. You know, all the things they want. So I'm a big advocate of private financing, you know, and it's the people, you know, people have money, there's money out there with the volatility in the stock market and things of that nature. People want to lend on real estate. It's a hard asset. You can never go wrong lending out hard assets.

(06:38): So look around, it's out there and you can buy these homes and really build some serious wealth with private financing. But if not, there's always traditional routes to go. Take your 30 year mortgages, be careful. Take your fifteens. I like 15 year mortgages. They're long enough, but short enough that makes sense. And you can still enjoy all the tax advantages and things of that nature. Then there's always paying cash. Should she pay cash? Should you use cash instead of the power of leverage? So I mean, that goes back to who are you? How are you built? Personally, I like paying cash for homes. I'm not a big debt guy. I just, it's not how I'm built. You know, some people will say, ah, you gotta use the power of leverage. And when you finally learn to use OPM, other people's money, then you know, you're a real real estate investor.

(07:27): I get all that. But you know what? You weren't there in 2009 when I was struggling to make those mortgage payments. You know, rents were coming and people weren't paying. Money wasn't being generated. I lived that. It was rough, man. When you're worried about paying your private investors, so when you're worried about making payments to the bank, so not a huge fan. I'm not a big leverage guy, just not for me. And I'm grateful now I'm able to have enough cash flow or I can hold back a month or two and buy another property. Cash. That's cool but good for me. Big deal. Right? Who cares? So continue to build. If you have cash. Personally I would use cash if you can or at least try to get financing half down. So that's it. That's the takeaway. That's the talk today. Just enjoying my day up here.

(08:11): You know. And the other thing just to add, cause I'm thinking about it, buying stuff like this or other, you're a car guy or watch guy or second home. Yeah, we always question the win. When do you do it? When are you going to rake the cash off the table? It takes them, as I say, take some chips off the table and really enjoy the fruits of your labor so it's worth it. So worth it. You've got to do that from time to time. I hear folks say, Oh, tomorrow or next year, or next week, or next month, or 10 years. And if you have ability to do it and you want to do something, go do it today. Tomorrow is not promised. Believe me. So that's it. Thanks for tuning in. It's a short one. Financing. Thanks.

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